Stable, not volatile: How battery storage shapes electricity prices
Source：pv magazine
In an energy system dominated by peaks in solar and wind generation, the focus shifts to balancing fluctuations and shifting energy over time. Large-scale battery energy storage systems (BESS) are an effective solution to this challenge. During periods of energy oversupply, they absorb energy, which they then feed back into the grid during periods of scarcity. This temporal shift reduces extreme price fluctuations, making prices more predictable and ultimately leading to a more efficient market overall.
Price mechanics, not gut feeling
At first, it may seem counterintuitive that battery storage systems dampen prices when they do not increase total annual production. However, the explanation lies in the mechanics of the market. Electricity prices are determined by the interplay of supply and demand, according to the merit order principle. Firstly, energy from wind and solar power is fed in. When this is insufficient, more expensive fossil fuel power stations are brought online.
During periods of high wind or solar energy production, the electricity market often experiences a surplus supply, which leads to competitive pricing. Battery storage systems can charge during these times with minimal impact on price. Conversely, when renewable energy output is low, fossil fuel power stations must fill the gap, resulting in higher prices. When storage systems are in operation, they displace these costly power plants, resulting in lower prices for all consumers. Overall, the downward price effect during discharge outweighs the small upward effect during charging.
Analysis of EPEX day-ahead data clearly shows that when charging during periods of low pricing, an additional demand of 100 MW results in a price increase of only around €9/MWh – an insignificant amount. However, during periods of high demand, such as expensive peak hours, storage has been observed to significantly reduce prices. On 31 October 2022, storage achieved a reduction of up to €16/MWh. Between 2020 and 2022, implementing a 100 MW/100 MWh storage system reduced the daily price spread by an average of more than five percent.
A recent Frontier Economics study lends further support to this hypothesis by using a broader set of data. The findings show that large-scale battery storage can significantly reduce price volatility in electricity markets. Expanding storage capacity to around 15 GW/60 GWh by 2030 could reduce average wholesale prices by around €1/MWh. At the same time, this would eliminate the need for around 9 GW of new gas power plants. The study shows that, as well as mitigating short-term price fluctuations, batteries contribute to long-term market stability.
Greater market integration for renewables
As the proportion of fluctuating electricity generation increases, the so-called ‘cannibalisation effect’ intensifies when large volumes of renewable electricity are fed into the grid simultaneously. This results in a decrease in the market value of the electricity.
Electricity price data highlights the scale of the issue. According to EPEX, wholesale prices were negative in 459 of the 8,784 hours in 2024 – around five per cent of the year. This is not a statistical anomaly, but rather an indication of insufficient system flexibility. The trend is accelerating; in the first six months of 2025 alone, there were 389 hours with negative prices – an 80% year-on-year increase. The early summer months set new records: May and June saw 130 and 141 negative-price hours respectively, representing all-time highs. This rapid increase highlights the urgent need for greater flexibility within the system.
Negative prices indicate that renewable power has no place in the system temporarily. Battery storage enables these surpluses to be utilised, thereby increasing demand during peak hours by storing energy and releasing it later when demand is high. This reduces negative prices and curtailment, making the system more attractive to investors, many of whom are deterred by volatile prices.
Ultimately, the impact of large battery systems extends far beyond price smoothing. The Frontier Economics study projects that expanding to around 72 GW of installed capacity by 2050 could generate social welfare gains of over €12 billion. Although batteries cannot entirely replace fossil power plants, they can significantly reduce their usage, making the entire energy system more efficient, stable and cost-effective.
Beyond markets: System services and the grid
Wholesale markets are just one of the many potential benefits of battery storage. Batter storage systems provide highly dynamic system services that support frequency and voltage stability, and they can be strategically located in areas where the grid regularly faces congestion.
In practice, batteries can reduce the need for redispatch measures – interventions designed to balance grid bottlenecks – particularly when they are used in locations that are both market-based and system-relevant. However, according to a recent ECO STOR study, their potential contribution to grid relief remains far below what is possible. To align grid and market needs, price signals reflecting both are necessary to ensure flexibility is channelled where it is most valuable for the system.
Even today, the effect can be measured. According to ECO STOR, large battery systems can reduce redispatch costs in the German power grid by between €3 and €6 per kW of installed capacity each year. They help avoid costly interventions such as reducing the output of renewable energy sources or increasing the output of conventional power stations by absorbing excess energy and releasing it later.
Each avoided redispatch measure saves costs that would otherwise be passed on to all consumers in the form of grid fees. Market and grid effects therefore reinforce each other, and the impact is felt quickly, since large-scale batteries can be operational within months rather than years.
What models show – and what we can learn
This principle can even be observed on individual days. On 11 June 2023, for example, which was a particularly volatile summer day, batteries absorbed surplus energy during periods of high renewable output and low prices, thereby preventing further price drops or even negative prices. During the subsequent hours of high demand, the stored energy was released, displacing expensive fossil fuel-powered plants and having a tangible impact on market prices.
Extrapolating the price effects of such storage operations up to October 2023 to household electricity consumption indicates potential savings of over €83 million. For the crisis year of 2022, which was marked by extreme volatility, model calculations indicate possible savings of €658 million, equivalent to around €1.36/MWh.
The key is not to reduce the cost of every single hour, but to stabilise prices by cushioning extremes in both directions.
Two persistent misconceptions
Despite all the evidence, some misconceptions persist. One particularly stubborn one is: ‘Storage only earns money when prices are high, so it can’t lower them.’ In reality, storage earns revenue from price spreads – the difference between low and high prices. As greater flexibility is introduced into the system, however, these spreads will decrease, thereby providing a societal benefit by stabilising prices. Storage operators are already implementing strategies to diversify their income streams, including arbitrage, frequency and voltage control, and congestion management. Consequently, the entire electricity system benefits from lower overall costs.
Another common misconception is that: ‘Negative prices are good for consumers.’ While a few hours of ‘free’ electricity may sound appealing, they come with curtailments, redispatch measures and distorted investment signals. Storage mitigates these additional costs by absorbing surplus energy and releasing it when it is most valuable. Ultimately, greater flexibility benefits everyone through lower total system costs.
Batteries smooth the price waves
Large-scale battery energy storage systems are an essential component of a modern power system, not just a useful addition. They dampen price spikes, add economic value to surplus electricity and ensure a more stable, lower price level.
In an energy system dominated by renewable sources, true capacity is not only measured in installed gigawatts, but also in the ability to deliver energy at the right time. To make the energy transition affordable, flexibility must be at the heart of our efforts and large-scale battery storage must be recognised as the backbone of a stable, cost-efficient electricity market.